First Bank and Trust v. Scottsdale Insurance Company

Filing 49

ORDER denying 11 Motion to Dismiss. Signed by Judge Nannette Jolivette Brown. (jrc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
FIRST BANK AND TRUST

CIVIL ACTION

VERSUS

NO. 14-2017

SCOTTSDALE INSURANCE COMPANY

SECTION: “G”(1)

ORDER AND REASONS
This litigation arises because Plaintiff First Bank and Trust disputes the propriety of
Defendant Scottsdale Insurance Company’s attempted payment of insurance proceeds jointly to
Plaintiff First Bank and Trust and its alleged debtor Edward Neely, a non-party.1 Plaintiff asserts that
it is entitled to a judgment for the full amount of the sums Defendant attempted to pay. Defendant
maintains that it has fully discharged its obligation. Presently pending before the Court is a “Motion
to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)”2 filed by Defendant. Having
considered the motion, the memoranda in support, the memorandum in opposition, and the
applicable law, the Court will deny the pending motion.
I. Background
A.

Factual Background
In its complaint, Plaintiff alleges that Defendant issued a policy of insurance to Edward

Neely covering seven properties in New Orleans (“Insured Properties.”).3 Plaintiff contends that

1

Although Neely is not a party to this action, the Court was informed shortly before deciding the instant motion
that Neely was involved in a prior proceeding related to the insurance policy at issue here, Civ. Action No. 14-48, Neely
v. Scottsdale Insurance Company. The parties have informed the Court that the prior proceeding has no effect on the
arguments advanced in connection with the instant motion.
2

Rec. Doc. 11.

3

Rec. Doc. 1 at pp. 2–3.

Defendant’s insurance policies designate it as the loss payee / mortgagee.4 Plaintiff maintains that
Neely is obligated to it, and granted it a multiple indebtedness mortgage on the insured properties
to secure his obligation.5 According to Plaintiff, Edward Neely and Sheryl Neely, neither of whom
are parties to this suit, executed two promissory notes to it on January 29, 2008: a note for $977,600
and a note for $465,000.6 Both notes, Plaintiff asserts, are secured by the mortgage upon the insured
properties; principal amounts of $990,000 and $250,000, plus additional amounts, remain due on
the notes.7
Plaintiff alleges that Defendant tendered two checks to Neely in connection with damage to
the insured properties, including a check in the amount of $89,750, dated June 30, 2014 (“Check 1")
and a check in the amount of $16,978.70, dated August 18, 2014 (“Check 2"), both of which
Plaintiff possessed at the time it filed its complaint.8 Plaintiff asserts that the terms of Defendant’s
insurance policy with Neely entitle Plaintiff to the amounts due under the policy, since its interest
in the mortgage is superior to Neely’s.9 Plaintiff contends that, as the loss payee/mortgagee, it has
“a direct cause of action” against Defendant for the amounts due under the policy, for the full
amounts of both checks.10 Plaintiff seeks these amounts, plus costs and legal interest.11
4

Id. at p. 3.

5

Id.

6

Id. Edward Neely and Sheryl Neely executed Note 1. Edward Neely executed Note 2. Plaintiff contends that
the amount of Note 2 was subsequently changed to $468,922.25. Id.
7

Id.

8

Id. at p. 4.

9

Id.

10

Id. at p. 5.

11

Id.

2

B.

Procedural Background
Plaintiff filed a complaint with this Court on September 4, 2014.12 The matter was initially

assigned to Section “J” of this Court, but Section “J” entered an “Order of Recusal”13 on September
8, 2014, causing the matter to be reassigned to this Section, Section “G.” On September 9, 2014,
Plaintiff filed an ex parte “Motion to Deposit Original Checks for Safekeeping.”14 The Court granted
Plaintiff’s ex parte motion on September 10, 2014, causing Checks 1 and 2 to be deposited with the
Clerk of Court pending the resolution of this matter.15 On December 11, 2014, Defendant filed a
“Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6).”16 On December 23, 2014,
Plaintiff filed an opposition to Defendant’s motion.17 On January 2, 2015, with leave of Court,
Defendant filed a reply in further support of its motion.18
II. Parties’ Arguments
A.

Defendant’s “Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)”19
In its motion to dismiss, Defendant contends that it “satisfied all duties it owed under the

policy by issuing the check in the names of both [P]laintiff and the named insured,” and that Plaintiff
therefore has failed to state a claim upon which relief can be granted.20 Defendant asserts that the
12

Rec. Doc. 1.

13

Rec. Doc. 5.

14

Rec. Doc. 6.

15

Rec. Doc. 7.

16

Rec. Doc. 11.

17

Rec. Doc. 17.

18

Rec. Doc. 22.

19

Rec. Doc. 11.

20

Rec. Doc. 11–1 at p. 3.

3

Mortgage Clause in its insurance policy provided that amounts due under the policy would be “paid
to the mortgagee and you [Edward Neely], as interests appear.”21 According to Defendant, this
Clause is a “simple or open mortgage clause” which, under Louisiana law, does not confer “a
separate contractual right of action against the mortgagor’s insurer.”22
Defendant contends that under both simple and “standard” loss payee clauses, the insurer
“typically” provides a joint check to the insured and the loss payee.23 The policy at issue here,
Defendant maintains, requires Defendant to include both names on the check, and the policy’s use
of the phrase “as interests appear” operates to prevent the named insured from taking payment upon
the check when the mortgagee has priority of payment.24 The question of priority, Defendant asserts,
“is an issue solely between the named insured and its mortgagee and does not restrict the insurer
from including both names on payments made under the policy.”25 Defendant asserts that it complied
with its obligations under the clause by paying losses owed under the policy to both Plaintiff and
Neely.26 Defendant further contends that it has done the same thing “on eight prior occasions” while
adjusting claims filed on the Insured Properties, with no objection from Plaintiff; this prior history,
Defendant contends, “exemplifies the propriety” of its payment process.27

21

Id. at p. 4.

22

Id. at pp. 4–6.

23

Id. at p. 6.

24

Id. at p. 7.

25

Id.

26

Id.

27

Id.

4

Defendant asserts that it cannot be held liable unless “the responsibility of determining the
amount due on the mortgage” is placed on it.28 Defendant maintains that this responsibility should
not be placed upon it, because: (1) it is not directly involved in the mortgage; (2) the insurance
policy does not expressly impose this duty; and (3) it is illogical to require it to determine what is
due under the mortgage and apportion payments accordingly, because it is not privy to the current
balance on the mortgage.29 Therefore, Defendant asserts, the only duty it has is to issue payments
in the name of the mortgagee and the named insured.30 Defendant maintains that it issued payments
in this way, consistent with Louisiana law, and therefore is under no obligation to take the
“additional steps suggested by [P]laintiff[].”31
B.

Plaintiff’s Opposition
In opposition to Defendant’s motion to dismiss, Plaintiff asserts that because Defendant

issued checks that it cannot redeem without the endorsement of Neely, it has received “only two
pieces of paper” that are “essentially worthless” in their own right, negating Defendant’s assertion
that it has satisfied its duties under the policy.32
Plaintiff contends that the Mortgage Clause in Defendant’s insurance policy required it to
make payments according to an allocation of interests in the insured properties.33 “If payment by
joint check could satisfy the insurer’s obligation,” Plaintiff contends, “there would be no

28

Id. at p. 8.

29

Id.

30

Id.

31

Id. at pp. 8–9.

32

Rec. Doc. 17 at pp. 1–2.

33

Id. at pp. 3–4.

5

requirement that the payment be made ‘as interests appear.’”34 Plaintiff maintains that this phrase
permits it to recover the full amount of payment due to it from Scottsdale, including the full
insurance payment where, as here, its mortgage interest exceeds the total amount payable under the
policy.35 According to Plaintiff, “[t]he jurisprudence has always held” that provisions like the Clause
at issue here “creates a right, which can be enforced by the lender, in a direct action against the
insurer.”36
Moreover, Plaintiff contends, the distinction between an open clause and a Union clause is
only relevant “when the insured has violated a policy provision that would cause the insured to deny
coverage.”37 Here, Plaintiff avers, no such violation has been claimed.38 Nonetheless, Plaintiff
argues that Defendant incorrectly characterized the mortgage clause at issue here as an open clause.39
Rather, Plaintiff asserts, the disputed mortgage clause contains language establishing that it is a
Union or standard clause, under which there is “no doubt” that it has a direct right of action against
Defendant under Louisiana law.40
Plaintiff argues that if Defendant is concerned about being required to pay claims against it
twice, then it is entitled to initiate an interpleader (or, in Louisiana, a concursus) proceeding to
determine the parties’ entitlement to payment before it pays.41 Plaintiff maintains that Defendant’s
34

Id. at p. 4.

35

Id. at pp. 4–6.

36

Id. at p. 6.

37

Id. at p. 10

38

Id. at pp. 8–10.

39

Id. at pp. 11–12.

40

Id. at pp. 12–14.

41

Id. at p. 14.

6

chosen method of payment is insufficient where, as here, the parties are unable to resolve their
disagreements about their entitlement to payment under the policy.42 Instead of “simply dropping
the multiple payee check into the midst of the payees and encouraging them to fight it out,” Plaintiff
asserts, Defendant “is required by its policy to actually pay the claim.”43 In light of this obligation,
Plaintiff argues, interpleader is the proper procedure to follow to safeguard the disputed funds until
claimants’ interests are determined.44 In the present case, Plaintiff contends, it is entitled to the entire
amount payable under the policy, and Neely is entitled to nothing; therefore, Plaintiff maintains, it
has stated a claim upon which relief can be granted.
C.

Defendant’s Reply
In further support of the instant motion, Defendant argues that Plaintiff has cited no authority

supporting the assertion that “an insurer is required to issue the property damage check solely in the
mortgagee’s name,” demonstrating that Plaintiff “is not entitled to the relief it seeks.”45
Defendant further contends that it is immaterial whether the Mortgage Clause at issue here
is an open clause or a Union clause, because this distinction only “becomes relevant when the
insured has violated a policy provision that would cause the insurer to deny coverage.”46 Such is not
the case here, Defendant maintains, because it has not denied coverage, and indeed has “made

42

Id. at pp. 14–15.

43

Id. at p. 15.

44

Id.

45

Rec. Doc. 22 at p. 1.

46

Id.

7

payment of sums due under the policy.”47 According to Defendant, Plaintiff’s cited authority does
not show that “the extent and priority of payment” must be “determined by the insurer.”48
Furthermore, Defendant argues, it would be against Louisiana law to require it to issue a
check solely to Plaintiff, because a check issued to Plaintiff alone would deprive the attorney (to
whom Check 1 is also made payable49) of the right to payment.50 According to Defendant, Louisiana
law provides that the attorney’s interest in payment trumps the interest of the loss payee.51
III. Law and Analysis
A.

Legal Standard: Rule 12(b)(6)
On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), this Court is

called upon to “to determine whether the plaintiff stated a legally cognizable claim that is plausible,
not to evaluate the plaintiff’s likelihood of success.”52 To survive dismissal pursuant to Rule
12(b)(6), the plaintiff “must plead enough facts to state a claim to relief that is plausible on its
face.”53 A claim is facially plausible “when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”54Although

47

Id. at pp. 1–2.

48

Id. at p. 2.

49

Rec. Doc. 1-2 at p. 1.

50

Rec. Doc. 22 at p. 3.

51

Id.

52

Thompson v. City of Waco, Texas, 764 F.3d 500, 503 (5th Cir. 2014).

53

Id. at 502.

54

Id. at 503.

8

the Court accepts “all well-pleaded facts as true,” and views those facts “in the light most favorable
to the plaintiff,” the Court need not “accept the plaintiff’s legal conclusions as true.”55
B.

Legal Standard: Documents Attached and Referenced in the Complaint and Motion
Papers
In connection with the present motion, both parties rely on certain documents attached to the

complaint and the motion papers. Plaintiff attached copies of the checks and Neely’s mortgage
agreement to its complaint.56 Defendant attached a copy of Neely’s insurance policy and related
schedules to its motion.57 On a motion to dismiss, a district court must consider the complaint,
“documents incorporated into the complaint by reference,” as well as “matters of which a court may
take judicial notice.”58 “The court may also consider documents attached to either a motion to
dismiss or an opposition to that motion when the documents are referred to in the pleadings and are
central to a plaintiff's claims.”59
In light of these rules, this Court may consider the attached documents at issue here, with
the exception of the schedules related to the insurance policy,60 to which Plaintiff does not refer in
its complaint. The insurance policy is attached to the instant motion.61 That policy is identified and
discussed in Plaintiff’s complaint, and is a central basis of Plaintiff’s claim against Defendant,
because Plaintiff alleges that it is a payee under the policy’s Mortgage Clause who has not yet been

55

Id.

56

Rec. Doc. 1-1; 1-2; 1-3.

57

Rec. Doc. 11-1; 11-2; 11-4.

58

Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011).

59

Brand Coupon Network, L.L.C. v. Catalina Marketing Corp., 748 F.3d 631, 635 (5th Cir. 2014).

60

Rec. Doc. 11-3.

61

Rec. Doc. 11-1; Rec. Doc. 11-2; Rec. Doc. 11-3.

9

paid.62 Therefore, the Court may consider the insurance policy on the present motion. Additionally,
Checks 1 and 2 are attached to Plaintiff’s complaint.63 Plaintiff alleges that although Defendant
issued Checks 1 and 2 in response to a claim under the insurance policy, it is entitled to the full
amounts stated on each check.64 Therefore, these documents will be considered. Finally, Plaintiff
alleges that the payees’ respective interests are determined by the status of Neely’s payment of the
promissory notes, which are secured by the mortgage agreement65 attached to the complaint.66 The
Court will also consider this document.
C.

Legal Standard: Interpretation of Insurance Contracts
The parties dispute whether, in light of the insurance policy at issue here and the applicable

law, Plaintiff has stated a claim upon which relief may be granted. Although the existence and
relevant language of the insurance policy itself are not themselves disputed, Defendant maintains
that Plaintiff has failed to state a claim because it has no duty, under the undisputed language of the
policy, to determine the parties’ respective interests in the proceeds of the policy. In Huggins v.
Gerry Lane Enterprises, Inc., the Louisiana Supreme Court set forth the principles to be applied
when interpreting insurance contracts, stating that:
An insurance policy is a contract between the parties and should be construed using
the general rules of interpretation of contracts set forth in the Civil Code. The
judicial responsibility in interpreting insurance contracts is to determine the parties'
common intent. Words and phrases used in an insurance policy are to be construed
using their plain, ordinary and generally prevailing meaning, unless the words have
acquired a technical meaning.
62

Rec. Doc. 1 at p. 3.

63

Rec. Doc. 1-2; Rec. Doc. 1-3.

64

Id. at p. 4.

65

Rec. Doc. 1 at pp. 3–5.

66

Rec. Doc. 1-1.

10

An insurance policy should not be interpreted in an unreasonable or a strained
manner so as to enlarge or to restrict its provisions beyond what is reasonably
contemplated by its terms or so as to achieve an absurd conclusion. Unless a policy
conflicts with statutory provisions or public policy, it may limit an insurer's liability
and impose and enforce reasonable conditions upon the policy obligations the insurer
contractually assumes.67
D.

Analysis
1.

Direct Right of Action

Considering Defendant’s original motion papers and Plaintiff’s memorandum in opposition,
it appears that the parties initially disputed whether the Mortgage Clause contained in Defendant’s
insurance policy allows Plaintiff to assert a claim against it for the amounts paid in Checks 1 and
2. Defendant asserted that the Clause is a “simple or open mortgage clause,” and therefore does not
give Plaintiff a “separate contractual right of action” against it.68 Plaintiff, in opposition, countered
that the clause is a standard (or “Union”) clause.69 Plaintiff nonetheless argued, however, that the
distinction is immaterial here, because a mortgagee has a “direct right of action” against the insurer
under either type of clause, unless there is a claim that the insured violated the policy.70 In reply,
Defendant appears to concede this argument, stating that “the characterization of the [C]lause is a
non-issue” unless “the insured has violated a policy provision that would cause the insurer to deny
coverage.”71 Defendant now maintains that “[t]he sole issue in this case is whether, as a matter of
law, [Defendant] is required to make property damage checks solely to the mortgagee . . . [or
whether it is] proper to make checks payable jointly to the named insured, the insured’s attorney,
67

2006-2816, 957 So.2d 127, 129 (La. 5/22/07) (citations omitted).

68

Rec. Doc. 11-1 at p. 6.

69

Rec. Doc. 17 at p. 14.

70

Id. at pp. 13–14.

71

Rec. Doc 22 at p. 2.

11

and the mortgagee.”72 Considering that Defendant and Plaintiff now agree that the characterization
of the Clause is not an issue, the Court will now turn to the scope of Defendant’s duty, if any, under
the Clause.
2.

Defendant’s Duty

Apart from disputing how the Clause at issue should be characterized, Defendant contends
that Plaintiff has failed to state a claim against it because “it satisfied all duties owed under the
policy” by issuing a check payable to Plaintiff and Neely.73 Plaintiff counters that the Defendant
failed to “allocat[e] . . . the interests in the property insured, and . . . [pay] the proceeds of the policy,
according to those interests,” as it was obligated to do.74
a.

Defendant’s Cited Authority
i.

Insurers’ Use of Joint Checks

In support of dismissal, Defendant initially cites several cases in support of the general
proposition that insurers “typically” issue payments by joint check.75 Although these cases suggest
that payment by joint check may occur without posing any problems for the insurer in certain cases,
none of the cases address what, if anything, an insurer is required to do to ascertain the parties’
respective interests in insurance proceeds.
First, in River Bend Capital, LLC v. Lloyd’s of London, cited by Defendant, the Louisiana
Fourth Circuit Court of Appeal noted that the claimant had settled with the insurer, and therefore

72

Id. at p. 1.

73

Rec. Doc. 11-1 at p. 6.

74

Rec. Doc. 17 at p. 4.

75

Rec. Doc. 11-1 at p. 6.

12

affirmed summary judgment based upon the affirmative defense of accord and satisfaction.76 As part
of the settlement agreement at issue, the insurer issued a joint check to the insured and its mortgagee,
which these payees then jointly endorsed.77 In River Bend, the parties did not dispute this method
of payment, and the court did not address whether it was consistent with the insurer’s responsibilities
under the policy at issue. Therefore, the decision sheds little light on the issue presently before the
Court.
Defendant also cites J.W. Warren & Associates v. Audubon Insurance Co., in which the
Louisiana Third Circuit Court of Appeal affirmed the district court’s dismissal, on prescription
grounds, of an insured’s claims against his insurer and his mortgagee.78 There, the insurance
company issued a check payable to the plaintiff and the mortgagee, and mailed that check to the
mortgagee.79 Without the plaintiff’s authorization, the mortgagee applied the entirety of the check
to the plaintiff’s outstanding debts.80 The plaintiff, in turn, sued the insurer and the mortgagee,
alleging that the insurer breached the insurance contract, and that the mortgagee breached its
fiduciary duty by applying the insurance proceeds to his outstanding loans.81 Reasoning that the
action was “essentially one for the recovery of proceeds on an insurance policy,” the court held that

76

2010-1317, 63 So.3d 1092, 1094 (La. App. 4 Cir. 4/13/11).

77

Id. at 1095.

78

93-1650, 638 So.2d 1241 (La. App. 3 Cir. 7/6/94).

79

Id.

80

Id. at 1241-2.

81

Id. at 1242.

13

the action was governed by a one-year prescriptive period and was untimely, as it had been filed
long after the one-year period had elapsed.82
Although J.W. Warren involves a dispute regarding a mortgagee’s entitlement to insurance
proceeds, it does not address the insurer’s role when a mortgagee and a policyholder dispute how
a joint payment should be allocated. In any event, the claims in this action were dismissed as
prescribed. Therefore, the case is not instructive here.
Further, Defendant cites Brooks v. Canadian Universal Ins. Co., in which the Louisiana
Second Circuit Court of Appeal affirmed the district court’s judgment based in part upon its
conclusion that the insurer properly elected to pay the insured for damage to an automobile, rather
than to repair it.83 There, the insurer issued a joint check to the plaintiff and the loss payee.84 The
plaintiff, apparently preferring that the car be “totaled,” did not authorize the car’s dealer to make
repairs, and subsequently filed suit against the insurer.85 It is not clear from the Brooks opinion
whether the plaintiff and the loss payee disputed whether the plaintiff was entitled to the insurance
proceeds in the first instance, and the court did not address whether the insurer was responsible for
ascertaining how those proceeds should be allocated. Accordingly, the case offers little guidance
here.
Defendant also cites WPL Marine Services, Inc. v. Woods-Tucker Aircraft & Marine Leasing
Corporation, in which the parties disputed their entitlement to a portion of insurance proceeds paid

82

Id. at 1243.

83

345 So.2d 963, 965 (La. App. 2 Cir. 1977).

84

Id. at 964.

85

Id. at 964-65.

14

to them by joint check.86 Specifically, the plaintiff asserted that the defendant wrongfully withheld
some of the proceeds, in violation of a “Bareboat Charter / Lease Agreement and Guaranty” to
which both it and the defendant were parties.87 The trial court entered judgment for the plaintiff, and
the appellate court affirmed, with amendments to the judgment, based upon its interpretation of the
agreement in dispute.88 Although this case involves a dispute regarding the allocation of insurance
proceeds, the insurer was not a party, and the case turned on an agreement between payees, rather
than upon the insurance policy itself. The responsibilities of the insurer do not appear to have been
in dispute. Therefore, this case, like those discussed above, does not address the issue presented
here.
ii.

Insurers’ Liability

Defendant also cites, and attempts to distinguish, two cases in which Louisiana courts found
insurers liable for failure to comply with the payment procedures set forth in the applicable
insurance contract. In Chrysler Credit Corp. v. Louisiana Ins. Guar. Ass’n, cited by Defendant, the
Louisiana Fifth Circuit Court of Appeal held that an insurer was liable to a loss payee for its failure
to include the loss payee’s name on a check.89 In that case, the policyholder designated the plaintiff
as a loss payee in her insurance policy.90 The policyholder subsequently made a claim on that policy,
and the defendant issued a check payable to the policyholder alone, whereupon the policyholder kept

86

361 So.2d 1304 (La. App. 1 Cir. 1978).

87

Id. at 1305.

88

Id. at 1306.

89

514 So.2d 245, 248 (La. App. 5 Cir. 1987).

90

Id. at 246-47.

15

the money.91 After the policyholder declared bankruptcy, the plaintiff sued the insurer for its
interests in the insurance proceeds, and obtained a judgment in its favor.92 The appellate court
affirmed, noting that the insurance policy contained a loss payable clause that made the insurer
“liable for the value of the loss to the extent of the policy limits,” and obligated it to “direct payment
to the designated loss payee up to the balance of the mortgage debt.”93
Defendant contends that Chrysler Credit is distinguishable from the present case, because
the insurer there omitted a loss payee’s name from the check, whereas both Plaintiff and Neely were
named on the checks at issue here. Indeed, Chrysler Credit holds only that an insurer must fully pay
a mortgagee that is entitled to payment. It does not, however, address what party is responsible for
allocating that payment, nor whether payment by joint check is sufficient where, as here, the payees
dispute their entitlement to the payment pursuant to an “as interests appear” clause.
Finally, Defendant cites Citi Mortg., Inc. v. Chase.94 In that case, the policyholder named the
plaintiff and another entity as mortgagees in her insurance policy.95 The policyholder filed a claim
with the insurer, but passed away before the claim was paid.96 The policyholder subsequently paid
the claim by issuing a check payable to: (1) the policyholder, (2) the other named mortgagee, and
(3) “CIT,” care of the insured’s executor, in that order.97 The executor took the money and failed to

91

Id.

92

Id.

93

Id. at 247-48 (citations omitted).

94

2011-0661, 81 So.3d 255 (La. App. 4 Cir. 12/14/11).

95

Id. at 256.

96

Id.

97

Id.

16

pay the mortgagees, whereupon the plaintiff mortgagee sued the executor and the insurer, alleging,
among other things, that the insurer “breached its contractual and fiduciary responsibilities” under
the insurance policy by issuing the check to CIT, care of the executor.98 The defendant
unsuccessfully moved for summary judgment, and asserted on appeal that the district court erred in
denying its motion, because the plaintiff “failed to produce any evidence to contradict” that the
defendant satisfied its duties under the policy.99
The Louisiana Fourth Circuit Court of Appeals affirmed the denial of summary judgment,
reasoning that the check “did not follow the order of payment detailed in the policy of insurance,”
which required that “ the order of payment will be the same as the order of precedence of the
mortgages,” if “more than one mortgage is named.”100
Defendant contends that Chase is distinguishable from the present case, because liability in
that case “was not based on the mere fact that the check was issued jointly to the named insured and
the mortgagees.”101 Indeed, the court in Chase found a genuine issue of material fact regarding
whether the insurer complied with the insurance policy based upon the insurer’s failure to properly
list the payees in the proper order on the check. It did not address whether the insurer was required
to determine how much each payee was owed. The mortgage clause at issue in the present case, like
the mortgage clause at issue in Chase, contains language stating that the “order of payment will be
the same as the order of precedence of the mortgages.” Here, however, Plaintiff does not argue that
Defendant incorrectly stated the order of payment on the joint checks. Rather, it argues that

98

Id. at 257.

99

Id.

100

Id. at 259.

101

Rec. Doc. 11-1 at p. 9.

17

Defendant is responsible for determining how much of the proceeds should be paid to Plaintiff.
Accordingly, Chase is distinguishable from the present case, and provides little guidance regarding
whether Plaintiff has stated a claim.
b.

Plaintiff’s Cited Authority

In opposition to the instant motion, Plaintiff initially provides a dictionary definition of
“ATIMA,” an acronym for “as interests appear,” a phrase included in the Mortgage Clause at issue
here. That definition states that the phrase “is sometimes used in insurance policies to show that the
named insured has an interest, usu[ally] an unspecified one, in the property covered by the policy
and is entitled to benefits to the extent of that interest. The phrase is also used in the policy’s
mortgage clause to protect the mortgagee’s real-property interest.”102 Plaintiff also cites a dictionary
definition of “mortgage clause,” which states, in part, that “such a clause usu[ally] provides that any
insurance proceeds must be allocated between the named insured and the mortgagee ‘as their
interests may appear.’”103 Plaintiff contends that these definitions support its assertion that the
instant mortgage clause “require[s] an allocation of the interests in the property insured, and a
payment of the proceeds of the policy, according to those interests.”104
As noted above, the Louisiana Supreme Court instructs that “[w]ords and phrases used in
an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning,
unless the words have acquired a technical meaning.”105 Here, both parties acknowledge that the

102

BLACK’S LAW DICTIONARY (10th Ed. 2014).

103

Id.

104

Rec. Doc. 17 at p. 4.

105

Huggins, 957 So.2d at 129.

18

Mortgage Clause contains an ATIMA provision. If the above-quoted dictionary definitions are
representative of the “generally prevailing meaning” of ATIMA, then the presence of an ATIMA
provision in the instant Mortgage Clause suggests that Plaintiff is entitled to a share of payment
under the policy commensurate with its interests. Plaintiff further contends, however, that the
ATIMA provision here would be meaningless if it only required Defendant to issue a joint check
to all payees, rather than determine how the payees’ interests actually appear.106
Plaintiff also quotes COUCH ON INSURANCE, a national insurance law treatise, in support of
the propositions that: (1) a mortgagee may “recover the whole amount . . . [of a payment] in his or
her own name, if the mortgage debt exceeds the loss;” and (2) where the amounts due on the policy
are disputed, it is “incumbent on the insurer to either seek an accounting of the monies owed, or a
verification and acceptance by the mortgagor and mortgagee.”107 Although this second point
supports Plaintiff’s assertion that Defendant was obligated to ascertain the amounts due to each
payee, the treatise cites no Louisiana authority on point.108

106

Rec. Doc. 17 at pp. 4–5.

107

STEVEN PLITT, DANIEL MALDONADO, ET AL. 4 COUCH ON INSURANCE § 65:17 (3d Ed. 2014). Plaintiff also
cites a Louisiana treatise which generically describes the characteristics of mortgage clauses. WILLIAM SHELBY
MCKENZIE & H. ALSTON JOHNSON III, 15 LA. CIV. L. TREATISE, INSURANCE LAW & PRACTICE § 10:220 (4th Ed. 2014)
(“If a policy is procured by and issued to the owner of the property, the method chosen to reflect the creditor's interest
in the property is usually to include a ‘loss payee’ or ‘loss payable’ clause in the policy. This clause contains language
noting the identity of the creditor and providing that the amounts payable under the policy upon occurrence of the insured
risk are payable to the insured and the creditor ‘as interest may appear’ or some similar phrase. This is a recognition of
the nature of most security arrangements, in which the interest of the insured owner is increasing gradually as he makes
his payments of principal and the interest of the creditor and holder of the security interest is decreasing at the same rate.
Thus it is impossible to fix their respective interests in advance, requiring the statement that the payment be made as their
interests respectively appear at the time of loss.”).
108

Plaintiff also quotes a Louisiana treatise that describes, in general terms, the use of loss payee clauses. See
Rec. Doc. 17 at pp. 7–8.

19

However, Plaintiff cites Durbin v. Allstate Ins. Co., in which the Louisiana Second Circuit
Court of Appeal noted that:
It is well established as the law of Louisiana that where insurance is taken out by the
mortgagor for the benefit of mortgagee, or is made payable to the mortgagee as his
interest may appear, the mortgagee is entitled to the proceeds of the policy to the
extent of his mortgage debt, holding the surplus, if any, after the extinguishment of
his debt for the benefit of the mortgagor.109
Based upon this language, it appears that Durbin supports the proposition that a mortgagee is
entitled to its rightful share of insurance proceeds where, as here, the insurance policy at issue is
payable to the mortgagee and the policyholder “as interests may appear.” Although the decision does
not set forth what the insurer is obligated to do in the event of a dispute between the mortgagee and
the policyholder, the decision nonetheless suggests that the relevant inquiry is not whether the
insurer attempted to pay the mortgagee in accordance with its interests, but whether the mortgagee
was actually paid. 110
Consistent with this reading is Toups Marine Transport, Inc. v. Zurich Ins. Co.,111 also cited
by Plaintiff. In Toups, a district court in the Eastern District of Louisiana observed, citing Durbin,
that Louisiana law provides that “where a mortgagor takes out insurance to pay the mortgagee as
its interest may appear, the proceeds are paid first to the mortgagee and the excess is then for the

109

267 So.2d 779, 781 (La. App. 2 Cir. 1972) (citing Adams v. Allen, 19 So.2d 578, 580 (La. App. 1 Cir.

1944)).
110

In addition to Durbin, Plaintiff cites White System of Alexandra v. Merchant’s Fire Assur. Corp. of N.Y.,
53 So.2d 697 (La. App. 2 Cir. 1951), a case in which the Louisiana Second Circuit Court of Appeal held that a loss payee
clause containing an ATIMA provision “virtually [made] the mortgagee an insured in equal status to the [policyholder],”
and thereby permitted the mortgagee to assert a cause of action against the insurer. The parties in White System did not
raise the issue of whether the insurer could discharge its obligations under a loss payee clause issuing a joint check to
the policyholder and the mortgagee—indeed, the insurer in that case denied the underlying insurance claim—and the
court, having no reason to address that issue, did not do so.
111

636 F.Supp. 847, 849 (E.D. La. 1986) (Schwartz, J.).

20

benefit of the mortgagor.”112 This decision’s reading of Durbin suggests that an insurer is required
to make payments according to the parties’ respective interests.
Finally, Plaintiff cites, without explanation, American General Fire & Cas. Co. v. Reese113
and Hurtado v. Riverside Court Condominium Ass’n Phase II, Inc.,114 decisions from the United
States Court of Appeals for the Fifth Circuit and the United States District Court for the Eastern
District of Louisiana, respectively. In Reese, the court, citing Durbin, noted that “the general law
in Louisiana is that where an insurance policy is taken out by a mortgagor for the benefit of a
mortgagee, the mortgagee is entitled to the proceeds of the policy to the extent of the mortgage debt
due at the time of loss.”115 The court then proceeded to consider a more specific issue: whether
Louisiana law supported reforming an insurance contract for the benefit of a previously unnamed
mortgagee.116 In Hurtado, the court, quoting Durbin, held that an insurer’s settlement agreement
properly provided for payment to a mortgagee, pursuant to the loss payee clause in the applicable
insurance policy.117 Although both cases cite Durbin, neither case addresses the issue presented here.

112

Id. at 849.

113

853 F.2d 370 (5th Cir. 1988).

114

No. 07-8671, 2009 WL 3614435 (E.D. La. Oct. 29, 2009).

115

853 F.2d at 373.

116

Id.

117

2009 WL 3614435 at *2 (“The Plaintiffs' insurance policy named Wells Fargo as a mortgagee and required
that any loss payable be paid to the Plaintiffs and the mortgagee. Further, Louisiana law required Wells Fargo to be
named as a loss payee. ‘It is well established as the law of Louisiana that where insurance is taken out by the mortgagor
for the benefit of mortgagee, or is made payable to the mortgagee as his interest may appear, the mortgagee is entitled
to the proceeds of the policy to the extent of his mortgage debt, holding the surplus, if any, after the extinguishment of
his debt for the benefit of the mortgagor.’).

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c.

Plaintiff’s Claim

In the instant motion, Defendant asserts that, as a matter of law, it has “satisfied all duties”
it owed under the insurance policy by paying the proceeds in dispute to Plaintiff and to Neely by
joint check.118 Plaintiff appears to agree that “[t]he basic facts in this case do not appear to be in
dispute,”119 but counters that Defendant has not discharged its duties under the policy, because the
payees cannot agree on how the proceeds are to be distributed, and therefore refuse to endorse the
check.120 In these circumstances, Plaintiff asserts, no payment has been made, because the two
checks issued by Defendant are “essentially worthless.”121
Neither party cites a case directly addressing whether an insurer may satisfy its obligation
to proceeds “as interests appear” by issuing a joint check to two parties who dispute their respective
entitlement to the proceeds. Rather, Defendant’s cited cases support the propositions that: (1)
payment by joint check does not always provoke litigation against the insurer;122 and (2) an insurer’s
failure to pay proceeds according to the terms of the policy may expose it to liability.123
Plaintiff’s cited authority, however, suggests that where, as here, an insurance policy
contains an ATIMA provision, a mortgagee may state a claim for recovery of insurance proceeds
if the mortgagee has not been paid in accordance with its interests. Specifically, the Louisiana

118

Rec. Doc. 11-1 at p. 6; Rec. Doc. 22 at p. 1.

119

Rec. Doc. 17 at p. 2.

120

Rec. Doc. 17 at pp. 14–15.

121

Id. at p. 2.

122

See River Bend Capital, 63 So.3d at 1094-95; J.W. Warren, 638 So.2d at 1241-42; Brooks, 345 So.2d at 96465; WPL Marine Services, 361 So.2d at 1304-05.
123

Chrysler Credit, 514 So.2d at 247-48; Chase, 81 So.3d at 259.

22

Second Circuit Court of Appeal’s Durbin decision instructs that where, as here, “insurance . . . is
made payable to the mortgagee as his interest may appear, the mortgagee is entitled to the proceeds
of the policy to the extent of his mortgage debt, holding the surplus, if any, after the extinguishment
of his debt for the benefit of the mortgagor.”124 Accordingly, the determinative question appears to
be whether the mortgagee has actually been paid in accordance with its interests, rather than whether
the insurer has unsuccessfully attempted to make payment to rival payees.
This interpretation is consistent with the plain language of the Mortgage Clause at issue
here.125 As noted above, the Clause states, in part, that “[i]f a mortgagee is named in this policy, any
loss payable . . . will be paid to the mortgagee and you, as interests appear.”126 This provision does
not address attempted, but unsuccessful, payment. Rather, under this provision, Defendant is
obligated to actually make payment to Plaintiff in accordance with its interests. Therefore, if
Defendant attempts to make payment, but this attempt is unsuccessful, then Defendant, as the
insurer, has not discharged its obligations under the policy.127
In light of this language, and in light of Durbin and other Louisiana decisions, it appears that
Plaintiff has stated a claim for the proceeds. Specifically, Plaintiff alleges that Neely owes it the full

124

See 267 So.2d at 781. See also Adams, 19 So.2d at 580 (“[I]t is now well established, without the necessity
of citing authorities, that where insurance . . . is made payable to the mortgagee as his interest may appear, the mortgagee
is entitled to the proceeds of the policy to the extent of his mortgage debt, holding the surplus if any, after the
extinguishment of his debt, for the benefit of the mortgagor.”). As noted above, federal courts have also applied Durbin.
125

See Huggins, 957 So.2d at 129 (“Words and phrases used in an insurance policy are to be construed using
their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning.”).
126

Rec. Doc. 11-2 at p. 36. See also Rec. Doc. 11-1 at p. 2 (quoting same); Rec. Doc. 17 at p. 1 (quoting same).

127

Defendant contends that it is “illogical” to require it to ascertain payees’ respective interests in insurance
proceeds, because it “is not in a position to determine the exact amount due on the mortgage and to decide whether the
check is payable to one or both and in what amounts.” Rec. Doc. 11-1. To decide the instant motion, which involves a
claim for proceeds paid in two checks pursuant to a single insurance policy, the Court need not address whether an
insurer generally must do more than Defendant did here. Rather, pursuant to Durbin and in light of the plain language
of the Mortgage Clause, it is only necessary to consider whether Plaintiff here has plausibly alleged that it has not been
paid as its interests appear.

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amounts stated on Checks 1 and 2, making those amounts “properly payable” to it, rather than to
Neely.128 Plaintiff further alleges that it is a loss payee/mortgagee under the policy issued by
Defendant, and is therefore entitled to judgment against Defendant for these amounts.129 Therefore,
Plaintiff has alleged both its entitlement to the proceeds and Defendant’s failure to pay those
proceeds in accordance with Plaintiff’s interests. Taking these factual allegations as true, Plaintiff
has plausibly stated a claim for the proceeds.130

128

Rec. Doc. 1 at pp. 4–5.

129

Id. at p. 5.

130

In reply, Defendant argues, for the first time, that requiring it to “issue a check solely to [Plaintiff]” would
be “against Louisiana law,” because such a check would not account for attorney’s fees owed. Rec. Doc. 22 at p. 3. As
noted above, however, the determinative question for purposes of the instant motion is whether Plaintiff has plausibly
alleged that it has not yet been paid its share of the proceeds in accordance with the terms of the Mortgage Clause.
Plaintiff alleges in its complaint that it is entitled to the full amount of the proceeds due under the policy, and in deciding
the instant 12(b)(6) motion, this Court takes Plaintiff’s factual allegations as true. To the extent that factual disputes may
exist regarding the amount of proceeds to which Plaintiff is entitled, those disputes not properly before the Court on this
12(b)(6) motion. Defendant also contends that it had previously paid Plaintiff and Neely by joint check without
provoking a dispute, raising the question of why the checks at issue here are deemed “worthless” by Plaintiff. Rec. Doc.
22 at p. 4. On this 12(b)(6) motion, however, this Court takes as true Plaintiff’s assertion that it has not yet been paid
in accordance with its interests under the policy.

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IV. Conclusion
For the foregoing reasons,
IT IS ORDERED that Defendant Scottsdale Insurance Company’s pending “Motion to
Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)”131 is DENIED.

27th
NEW ORLEANS, LOUISIANA, this ____ day of May, 2015.

_________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE

131

Rec. Doc. 11.

25